Here's why Bitcoin is the future of money

commentary Bitcoin may not last, but crypto-currency is here to stay -- it's only a matter of time before a government replaces paper with more traceable, secure digital money. But is that a good thing?

The interesting thing about Bitcoin isn't what it is today. What's interesting is that this experiment is turning into a serious proving ground for the idea of "crypto-currency," digitally created currency protected by powerful cryptography.

Crypto-currency is traceable, more portable than paper money, and harder to steal. If the Bitcoin experiment proves successful, how soon will a government or other regime develop, back, and distribute crypto-currency as a true alternative currency?

My money, paper or virtual, says that day is coming.

A particularly evolved regime could officially back a crypto-currency, issue some basic standards and regulations for use, and then continue to allow it to be community mined and distributed. You'd get the security benefits of decentralized production, the peer-to-peer buy-in of a barter currency, and none of the printing costs or insecurity of paper.

On the other hand, a particularly devolved regime could do all those things but use the digital power of the currency to spy on its users, control or corrupt the flow of currency, or implement the tech insecurely and disrupt the global economy. A major move to crypto-currency could go either way, but I bet it's coming, nevertheless.

First, let's get past the crypto-currency and Bitcoin objections. This technology is here to stay -- so let's take the arguments point by point.

What about the gold standard?
The first objection to Bitcoin, of course, is that it isn't backed by anything, so despite a trust and barter system, it's ultimately worthless. Let's be honest: The reason people are interested in alternative currencies in the first place is that it sometimes feels like the paper in your wallet and certainly the plastic are equally ephemeral.

But let's assume we're talking about a centrally issued crypto-currency of the future: Problem solved. Backing would be ensured, but mining and distribution could remain decentralized to promote better security and code innovation.

It's insecure: Anything can be hacked
Yes, anything can be hacked. But it's worth noting that Bitcoin itself has never been hacked. In fact, famed hacker Dan Kaminsky said he tried to hack it and failed. Some of the technologies around Bitcoin, including some of the exchange sites, have been hacked, but never the actual currency algorithms.

Plus, digital currency has traceable transactions. It can even have traceable code embedded during the mining process. So to discourage or respond to theft, a regime could blacklist or poison stolen currency, rendering it useless and possibly even using blacklisted code to find thieves.

Bitcoin proper isn't likely to come with a blacklisting scheme. It's unregulated and blacklisting would be tricky at best -- its community would have to agree on a set of standards that would trigger poisoning specific coins. It could end up punishing innocent users, and it can be technically difficult to track stolen coins, thanks to services called "mixers" that mix coin code and effectively launder Bitcoins.

But blacklisting is still technically possible; it's quite easy to imagine a centrally issued crypto-currency having a set of standards and chain-blocking to both trace stolen currency and prevent its use.

To be clear, I'm not advocating this usage, and there are plenty of good arguments against it, but I can imagine it being appealing to banks and governments that might decide that security and currency tracking are more valuable than fungibility.

It's just a techie experiment
It's easy to dismiss Bitcoin or crypto-currencies as the flailings of a disaffected, semi-anarchist hacker community trying to undermine the system. But you know what? Hackers created the Internet, and the decidedly anti-establishment Steve Jobs gave us the modern technology era we know and love today. A lot of good ideas started out as techie experimentation.